President Trump issued an Executive Order (EO) on January 30
2017 regarding regulations that could have a significant impact
on recently issued tax regulations.
The Congressional Review Act permits regulations dating back
potentially to 1996 to be invalidated by a (filibuster proof)
majority of both houses of Congress and the President's
signature, again with potentially major tax implications. In
addition, the Internal Revenue Code provides that temporary
regulations automatically sunset after three years.
The EO provides that for every one new regulation issued, at
least two prior regulations must be identified for elimination.
The EO provides that for fiscal year 2017 (ending on September
30) the total incremental cost of all new regulations,
including repealed regulations, to be finalised this year will
be no greater than zero. "Regulation" is defined broadly and
for tax purposes it could include such guidance as IRS notices
and revenue procedures in addition to Treasury Regulations.
The Congressional Review Act authorises Congress to override
all regulations issued within 60 legislative days of their
issuance through an expedited review process. Regulations
issued in December 2016/January 2017 at the end of the Obama
Administration all fall within the 60-legislative day window.
In addition, the 60-legislative day window does not begin until
the promulgating agency submits a report to Congress regarding
the subject regulation. To the extent this notification is not
complied with, any regulation issued since the passage of the
Act in 1996 is subject to Congressional invalidation.
In addition, Code section 7805(e) provides that a temporary
regulation expires (sunsets) within three years of
The potential tax impact of these cumulative rules is broad.
For example, the section 385 regulations, which have a
significant impact on inbound taxpayers, and have received
substantial criticism from the tax community could be part of
either a two-for-one trade or invalidated under the
Congressional Review Act. The same could apply for recently
issued regulations under sections 987, 367(d), and 901(m).
Section 482 regulations issued in September 2015 that
reflect increased IRS aggressiveness in aggregating
transactions and other transfer pricing areas are in temporary
form and could simply be permitted to sunset and therefore be
invalid in September 2018 if not otherwise invalidated per the
EO or the Congressional Review Act.
We expect a great amount of activity for the rest of 2017 in
this area, with a large number of regulations up for
Jim Fuller (firstname.lastname@example.org)
and David Forst (email@example.com)
Fenwick & West